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Rationalize each numerator. See Example 7.2x + 12x - 1

Intermediate Algebra | 6th Edition | ISBN: 9780321785046 | Authors: Elayn El Martin-Gay ISBN: 9780321785046 180

Solution for problem 81 Chapter 7.5

Intermediate Algebra | 6th Edition

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Intermediate Algebra | 6th Edition | ISBN: 9780321785046 | Authors: Elayn El Martin-Gay

Intermediate Algebra | 6th Edition

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Problem 81

Rationalize each numerator. See Example 7.2x + 12x - 1

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Chapter 17 Notes  Quantity theory of money  Price rises when the government prints too much money  Most economist believe the quantity theory is a good explanation of the long run behavior of inflation  The Value of money  P = the price level  Price level- the price of a basket of goods, measured in money  1/P is the value of $1, measured in goods  ex. If P = $2, value of $1 is ½ candy bar  inflation drives up prices and drives down the value of money  Money supply (MS)  In the real world, the MS is determined by Federal Reserve, the banking system, and consumers  In this model, we assume the Fed precisely controls MS and sets it at some fixed amount  Money Demand (MD)  Refers to how much wealth people want to hold in liquid form  Depends on P  An increase in P reduced the value of money, so more money is required to buy goods and services  Thus, quantity of money demanded is negatively related to the value of money, and positively related to P, other things equal  (these other thins include, real income, interest rates, availability of ATMs)  as the price level falls, the value of money rises and vise versa  The Fed sets MS at some fixed value regardless of P  Perfectly inelastic  A fall in the value of money (or increase in P) increases the quantity of money demanded  Downward sloping, just like a regular demand curve  P adjusts to equate quantity of money demanded with money supply  Equilibrium price level  Suppose the fed increases the money supply…  Then the value of money falls, and P rises  How does this work  At the initial P, an increase in MS causes excess supply of money  People get rid of their excess money by spending it on goods and services or by loaning it to others, who spend it  Result- increased demand for goods  But supply of goods does not increase, so price must rise  Real vs. Nominal Variables  Nominal variables- are measured in monetary units  ex. Nominal GDP, nominal interest rate (rate of return measure in $), nominal wage ($ per hour worked)  price is a nominal variable  real variables- are measured in physical units  ex. Real GDP, real interest rate (measured in output), real wage (measured in output)  relative price is real variable  relative price- the price of one good related to (divided by) another  measured in physical units  Real vs. Nominal Wage  W= nominal wage = price of labor  Ex. $15 per hour  P= price level= price of goods and services  Ex. $5 unit of output  Real wage is the price of labor relative to the price of output  W divided by P  Classical Dichotomy- the theoretical separation of nominal and real variables  Hume and the classical economists suggest that monetary developments affect nominal variables, but not real variables  If central banks double the money supply, Hume and classical thinkers contend…  All nominal variables – including prices – will double  All real variables – including relative prices – will remain unchanged  Monetary Neutrality- the proposition that changes in the money supply do not affect real variables  Doubling the money supply causes all nominal price to double, the relative price is unchanged (real variable)  Velocity of money- the rate at which money changes hands  P X Y = nominal GDP  (price level) x (real GDP)  M = money supply  V = velocity  Velocity formula = (P x Y) / M  Velocity is fairly stable over time  The Quantity Equation  Velocity Formula = (P x Y) / M  Multiply both sides by M  M x V = P x Y  Called quantity equation  Represents the entire economy  What does the quantity equation tell you  Velocity is stable  So, a change in M causes nominal GDP (P x Y) to change by the same percentage  A change in M does not affect Y  Money is neutral  Y is determined by technology and resources  P changes by the same percentage as P x Y and M  Rapid money supply growth causes rapid inflation  Things to remember about the Quantity Theory of Money  If real GDP (Y) is constant, then inflation rate = money grow rate  If real GDP (Y) is growing, then inflation rate < money growth rate  The bottom line:  Economic growth increase number of transactions  Some money growth is needed from these extra transactions  Excessive money growth causes inflation  Hyperinflation- generally defined as inflation exceeding 50% per month  Caused by government printing too much money  Excessive growth in the money supply always causes hyperinflation  Inflation tax- the revenue from printing money  When tax revenue is inadequate and ability to borrow is limited, government may print money to pay for its spending  Almost all hyperinflation starts this way  Printing money causes inflation, which is like a tax on everyone who holds money  In the U.S. the inflation tax today accounts for less than 3% of total revenue  The Fisher Effect  Nominal interest rate = inflation rate + real interest rate  In the long run, money is neutral, so a change in the money growth rate affects the inflation rate but not the real interest rate  The nominal interest rate adjusts one-for-one with changes in the inflation rate  This relationship is called the Fisher effect, after Irving Fisher who studied it  The Fisher effect- an increase in inflation causes an equal increase in the nominal interest rate, so the real interest rate is unchanged  In other words, a 1% increase in inflation causes a 1% increase in the nominal interest rate  The cost of inflation  Inflation fallacy- most people think inflation erodes real incomes or their purchasing power  But, inflation is a general increase in price of the things people buy and the things they sell (ex. Labor), so incomes rise with inflation  In the long run, real incomes are determined by real variables, such as human capital, physical capital, technology, and natural resources, not the inflation rate  Nominal income = real income + inflation  Shoeleather costs- the resources wasted when inflation encourages people to reduce their money holdings  Includes the time and transaction costs of more frequent bank withdrawals  Menu costs- the cost of changing prices  Printing new menus, mailing new catalogs, etc.  Higher inflation causes more frequent price changes which leaders to higher menu costs  Earning interest on your money helps offset inflation  Misallocation of resources from relative-price variability- firms don’t all raise prices at the same time, so relative prices can vary which distorts the allocation of resources  Confusion and inconvenience- inflation changes the yardstick we use to measure transactions  Complicates long-range planning and the comparison of dollar amounts over time  Tax distortions  Inflation makes nominal income grow faster than real income  Taxes are based on nominal income, and some are not adjusted for inflation  Inflations causes people to pay more taxes even when their real incomes don’t increase  Arbitrary redistribution of wealth- higher-then-expected inflation transfers purchasing power from creditors to debtors  Debtors get to repay their debt with dollars that aren’t worth as much  Lower- than – expected inflation transfers purchasing power from debtors to creditors  High inflation is more variable and less predictable than low inflation  These arbitrary redistributions are frequent when inflation is high  Cost of inflation  All these costs are quite high for economies experiencing hyperinflation  For economies with low inflation (<10% per year), these costs are probably smaller, though their exact size is open to debate

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Chapter 7.5, Problem 81 is Solved
Step 3 of 3

Textbook: Intermediate Algebra
Edition: 6
Author: Elayn El Martin-Gay
ISBN: 9780321785046

The full step-by-step solution to problem: 81 from chapter: 7.5 was answered by , our top Math solution expert on 12/23/17, 04:59PM. The answer to “Rationalize each numerator. See Example 7.2x + 12x - 1” is broken down into a number of easy to follow steps, and 10 words. Intermediate Algebra was written by and is associated to the ISBN: 9780321785046. This textbook survival guide was created for the textbook: Intermediate Algebra, edition: 6. Since the solution to 81 from 7.5 chapter was answered, more than 243 students have viewed the full step-by-step answer. This full solution covers the following key subjects: . This expansive textbook survival guide covers 90 chapters, and 8410 solutions.

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Rationalize each numerator. See Example 7.2x + 12x - 1